NHBC loses appeal over ‘muddled’ client-insurance cover
The Court of Appeal has ruled against an attempt to block a housing association from making an insurance claim under a National House Building Council (NHBC) policy covering contractor insolvency.
Catalyst Housing appointed Vantage Design and Build Ltd to construct 175 homes at the former RAF Stanbridge site in Bedfordshire in November 2015 under a £23.8m deal.
Some £10.3m of the contract related to 88 social housing units.
Vantage started work in December 2015 but stopped on 17 June 2016, before going into administration on 29 June.
Squatters moved onto the site and Catalyst had to spend £56,350 on security over the following months.
In March 2016, Catalyst took out an NHBC insurance policy – relating to the social housing units – covering the group in the event that it would “have to pay more” than it would otherwise have done due to the contractor’s insolvency or fraud before practical completion.
Months later, Stack London was appointed as construction manager to procure individual trade projects to complete the scheme.
Around the same time, in December 2016, Catalyst told the NHBC that it intended to claim on the policy, and in February 2017 calculated it had spent £1.4m more than it would otherwise have laid out.
Practical completion was achieved in January 2021, with the final cost of the social units reaching £11.3m.
In July 2023, Peabody started proceedings against the NHBC under the policy, for the sum of £913,555.
The NHBC applied to court to strike out the claim because it was time-barred under general contract law (Section 5 of the Limitation Act 1980), with more than six years having passed since Vantage went into administration.
This was rejected by the High Court in August 2024 on the basis that a six-year limitation period came into force not at the time of the administration, but when Peabody had to pay the extra costs.
The NHBC applied to the Court of Appeal to overturn this decision, but in a ruling handed down on Monday (21 July), three judges again sided with Peabody.
According to Lord Justice Coulson, the wording of the NHBC policy was “rather muddled”, but he said its trigger related to the client having to pay more.
He added that the insolvency date cannot be the point at which the client would have to pay more because any extra costs would be unknown at that time.
The fact that the policy also covered fraud answered the point “decisively” against the NHBC, he ruled, stating that in cases of fraud an employer would be unlikely to know when this had taken place for months or years afterwards and so the event itself could not be the starting point for a six-year limitation period.
“If your cause of action has accrued, and is established in principle, you are entitled to be paid out promptly: you do not expect to be fobbed off for years whilst the figures are endlessly pored over,” he added.
The NHBC had also put forward an alternative argument, stating that the point at which Catalyst had to pay the extra money would have been when it went out to tender, so that by February 2017 at the latest, the claim was still statute-barred.
This has not been ruled on yet and the actual period of limitation is set to be decided after future legal proceedings, which are due to be heard at a trial.
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